5 hotline Q&A including one related to our heavy spring rains. Is it necessary to disclose seepage or leaks in the basement that have never occurred before in the history of the home?
Illinois REALTORS® Legal Hotline Attorney
1. It has been a stormy and rainy spring season in Illinois. Several homes are experiencing seepage or leaks in basements that have never occurred in the history of the home. Is it necessary for a seller to disclose and/or update the Residential Real Property Disclosure Report to reflect what may be a one-time occurrence with flooding or seepage?
Under the Illinois Residential Real Property Disclosure Act (“the Act”), a seller must disclose any material defect of which they have actual knowledge and might provide a property disclosure form to a buyer prior to the time a contract is signed. Under the Act, the seller must supplement the original form in writing if they become aware of a condition or material property defect between the time they provided the disclosure form to the buyer and the time of the closing. They do not need to use any specific form to update the original disclosure, but they should be sure it is done in writing and delivered to the buyer in some agreed manner.
The issue should probably be disclosed (subject to the advice of the seller’s attorney) even in a situation where water or seepage in a basement appears to be a one-time occurrence and arguably related to a crazy spring storm season as well as when the seller may be assured by an inspector or repair person that it may never occur again.
Disclosure protects the seller from potential legal consequences down the road. If a buyer were to experience seepage or water in the basement during a future rainy season, and the issue had not been disclosed, they could have solid grounds for a civil lawsuit against the seller. In that case, the seller could bear the costs for remedying the defect.
2. Is it permissible for a real estate licensee to work as a property manager for a third-party leasing company and continue to work as a sales agent or broker for their sponsoring broker?
Under the Real Estate License Act a licensee may only perform licensed activities for his or her sponsoring broker, and a licensee must only have one sponsoring broker at any one time. Furthermore, a licensee may only be compensated for licensed activities by their sponsoring broker.
One possible solution to the potential issue, and a manner by which all parties might benefit, could be for the sponsoring broker to enter into an agreement with the property management/leasing company. Ideally, the agreement between the companies would be drafted by attorneys and address the roles and responsibilities of each party with respect to the property. The licensed agent’s employment agreement with his own sponsoring broker should address responsibilities with respect to property management and also address compensation through his own sponsoring broker. In this manner, all parties remain compliant with license law but still have the opportunity to develop a property management relationship. Be sure to consult with attorneys and insurers before going this route.
Finally, another potential way in which a licensee can become involved in property management and continue to work for their own sponsoring broker is for the licensee to open their own, wholly owned property management company. That licensee would be the 100 percent stock owner of the company and the separate licensed brokerage company would employ a separate managing broker as well as a distinct team of licensees. It is important to note that the licensee could own but not be sponsored by or do work for the property management company if he remains sponsored by his original sponsoring broker.
The Illinois REALTORS® website provides access to legal webinars that provide helpful information on property management.
3. What are the potential pitfalls of dual agency?
Generally, representing more than one party to a transaction presents a conflict of interest because the parties may rely upon the advice of the REALTOR®, and the interests of the opposing parties are very often in conflict with each other. Therefore, once a REALTOR® becomes a dual agent in a transaction they have reduced their role to that of a “glorified messenger.”
In the role of a dual agent, the REALTOR® can no longer advocate for either party in the transaction. Furthermore, the REALTOR® should take extraordinary measures to keep confidential information of each party to the transaction private and secure from the other party unless given permission to share information. Each party must give their consent in writing to the dual agency arrangement.
Finally, if one party has a change of heart and is no longer comfortable with the dual agency situation, the REALTOR® must release them from the dual agency situation, referring the party to a new designated agent, either within the same company, if the company is large enough, or outside of the “house,” if the company is small or if the referred party prefers this avenue.
4. If a sponsoring broker is holding earnest money on a contract, and the buyer believes the contract is terminated due to inspection issues and has given notice and request for a return of their earnest money, but the seller disputes the cancellation of the contract, what must the sponsoring broker have in place before releasing the funds?
It is important to remember that both parties to a transaction have a potential claim to earnest money held in escrow and therefore, they cannot be released upon the direction or demand of only one party. If a sponsoring broker is made aware of a dispute over the return or forfeiture of earnest money, or has actual knowledge that one of the parties to a transaction disagrees with disbursement, the sponsoring broker must continue to hold the funds until one of the following occurs:
- The sponsoring broker has a written release from all parties (or their authorized agents) to the disposition of the funds;
- A civil action is filed by either the sponsoring broker or a party to the transaction, at which time the funds can be deposited with the court;
- The funds are turned over to the State Treasurer’s office as outlined by the Uniform Disposition of Unclaimed Property Act after inactivity in the account or another reason and the sponsoring broker has been holding it in escrow for three years.
Obviously, the most appealing manner to deal with funds held in escrow is to disburse them upon agreement of the parties. However, disputes do arise and, in some cases, the most expeditious way to possibly reach an agreement may be using an outside resource.
An excellent (and cost-effective) way in which to attempt to reach a resolution is to reach out to the Illinois REALTORS® Ombudsman Program which is designed to involve a trained third-party in the matter to help guide the parties to a mutually agreeable solution. The program has a high success rate, averaging 80 percent satisfaction, in helping parties reach an agreement.
5. I am in the process of closing my real estate practice and I have funds in my escrow account that remain unclaimed. How do I comply with license law in closing the account and what do I do with the unclaimed funds?
On occasion, a sponsoring broker holds escrow money for a transaction which remains unclaimed or disputed by either party to the transaction. After a period of three years, those unclaimed funds must be reported to the Illinois State Treasurer as provided for under the Illinois Revised Uniform Unclaimed Property Act.
As of January 1, 2018, the Act requires the reports to be filed online. The process to turn over the funds as required by the Act can be somewhat cumbersome and it does require attention to the details outlined by the Act with respect to the manner in which the funds should be turned over. The Illinois Revised Uniform Unclaimed Property Act requires the holder of the unclaimed property to send the apparent owner of the property notice by first class United States mail in a format that complies with the requirements of the Act, prior to turning the0 funds over to the State.
If you are turning over unclaimed funds, log on to the State Treasurer’s web page at https://icash.illinoistreasurer.gov/. If you have sums of money that remain unclaimed by up to four different parties, the easiest way to deposit that money with the State of Illinois is to submit an individual report for cash deposit on the website.
However, if you are dealing with more than just a few sums of money that belong to different parties, you will use the FAQs link on the page to access information on how to submit a report. Various software solutions for creating an electronic report file for multiple “missing owners” may be found on the Treasurer’s website.
If you need assistance in the process, you can contact the Illinois State Treasurer’s cash help desk at 1-800-961-8302.